Robert Feinberg: Cameron Addresses Parliament on Eurozone

Following a two-day European Council meeting in Brussels, Belgium, to discuss the future of the eurozone last week, U.K. Prime Minister David Cameron briefed Parliament on the results, which were inconclusive. The United Kingdom, perhaps fortunately, is not part of the eurozone, but it is a member of the European Union.

The first topic Cameron mentioned was deregulation, and he said he called upon the Council to drop "regulations that stifle our businesses." This sounds somewhat like an echo of the debate going on in the United States, as well. However, the meetings concluded that some proposals would be withdrawn and that efforts would be made to identify areas where the regulatory burden could be lightened.

Next, Cameron referred to steps being taken to complete the single market in energy, services and digital. "It is important to see that these are followed through to secure jobs and growth," he stated.

On trade, he reported that the Council has adopted "an ambitious agenda to create 2 million jobs across Europe." Free-trade deals are expected to be completed with Canada and Singapore in the coming months, and negotiations will be started with the United States next year on a comprehensive transatlantic trade and investment agreement. In addition, some progress has been made on launching negotiations with Japan in the coming months. It is estimated that these agreements could increase the EU gross domestic product by 42 billion euros.

Cameron then turned to the eurozone. "Britain is not in the eurozone, and we're not going to be turning to the eurozone; Britain is not in the eurozone, and we're not going to be joining the eurozone," he proclaimed. Some Members of Parliament cheered. He then added, "It is in Britain's national interest that the uncertainty surrounding the eurozone comes to an end."

One of the features needed to achieve this would be an effective banking union to support the single currency. It is not the single market that requires this, but the single currency.

Cameron stated firmly that the United Kingdom should not and will not be part of that banking union. "Britain's banks will continue to be supervised by the Bank of England, not the ECB [European Central Bank], and British taxpayers will not be guaranteeing or rescuing eurozone banks."

However, he said it is necessary to make progress on forming the banking union by implementing the plan that was announced in June. Specifically, he said, the EU banking union should not be stripped to the simplest elements, like mutual deposit guarantees, a common fiscal backstop and a framework for rescuing banks, all of which are "needed to break the dangerous links that are in the eurozone between sovereign-debt problems and the stability of eurozone banks." Cameron went on to say that for countries that will not join the European Union, like the United Kingdom, "it is essential that the unity and integrity of the single market is fully respected." The conclusions of the meeting also recognized the importance of a level playing field and fair and effective decision making by the European Banking Authority. He stated that he secured an important commitment in the conclusions "that the final report and roadmap in December will include 'concrete proposals to ensure the integrity of the single market is respected.'"

Finally, Cameron reported that the next Council meeting, in November, would discuss the financial framework for Europe between 2014 and 2020. He got a reaction of support when he stated that the tough settlements that have been put in place in Europe have not been done to enable big increases in European spending, and he observed that German voters don't want this any more than British voters do. Therefore, these two governments "have led the argument in Europe for fiscal restraint." He concluded that he "put down a marker for a rigorous settlement." Given the tough measures various countries have taken, therefore, spending should increase by no more than the rate of inflation.

Cameron spoke to foreign-policy issues and stated that the United Kingdom led the effort for further restrictions on the Syrian regime "and made clear to Iran that we will increase the pressure if there isn't progress on the nuclear issue." In summary, the agenda in dealing with the European Union is "making our economies competitive, dealing with uncertainty in the eurozone, keeping the EU budget under proper control and making sure the EU speaks with a strong and united voice on the key international challenges."

From an American perspective, Cameron's address should provoke inquiry into the pronouncement he made that "British taxpayers will not be guaranteeing or rescuing European banks." The American question would be whether this declaration is made possible by the fact that U.S. authorities are rescuing the EU banks in order to protect both U.S. and EU banks from having to take writedowns and face resolution. I suspect that the 2008 episode is still under way and that the Treasury and the Federal Reserve are taking extraordinary measures to keep the system afloat. The evidence for this is fragmentary, and the administration's policy statements have to be carefully parsed for clues as to what is happening behind the scenes.

Robert Feinberg served on the staff of the House Banking Committee for the 10 years that encompassed the savings-and-loan debacle and the beginning of its migration to the banking sector. Subsequently, he has consulted on issues related to the crisis for law firms, accounting firms, securities firms and trade associations.

Feinberg holds a BS.E. from the Wharton School and a J.D. from the Law School of the University of Pennsylvania. He has drafted dissenting views on landmark banking legislation, contributed to a financial blog and written hundreds of reports for clients to document the course of the financial crisis as it has unfolded over the past three decades.

Following a two-day European Council meeting in Brussels, Belgium, to discuss the future of the eurozone last week, U.K. Prime Minister David Cameron briefed Parliament on the results, which were inconclusive.